CONFUSION: The Cost of Gas Help My Understanding Please

The Today Show has the CEO of Exxon on and he is explaining how this is absolutely a DEMAND driven phenomenon. He reports that we have essentially reached the "walk-away" price meaning people have started to modify their behavior; drive less, buy smaller cars, use mass transit (except in the N.E. where it really isn't available), bulk trips where you combine activities etc.

Yesterday, I read this article. While it's on the long side it explains that the facts don't support the rise in gas being due to DEMAND or SUPPLY.....it's the wars. On DP we have been saying this from the start. There are rather obvious reasons that the media would promote the SUPPLY/DEMAND reasoning but....I'm having a hard time explaining this to people in a concise way and I hope you can help. As gas moves to over $4.00 gal. people are ready to listen-it's a wonderful opportunity! How much of the price is due to the media arguments; China, India etc. How much is due to war?

Please leave your thoughts.

Here's the article:

First Published 2008-05-14

Worried about Price of Gas? End US Wars

There is evidence that the heightened price of energy is a direct consequence of the destabilizing wars and geopolitical insecurity in the region. These include not only the raging wars in Iraq and Afghanistan, but also the threat of a looming war against Iran, says Ismael Hossein-zadeh.

Despite all the recent talk of soaring prices at the pump, political and economic pundits rarely mention the impact of war and political instability in the Middle East on the skyrocketing price of oil. There is strong evidence, however, that the heightened price of energy is a direct consequence of the destabilizing wars and geopolitical insecurity in the region.

These include not only the raging wars in Iraq and Afghanistan, but also the threat of a looming war against Iran. The record of soaring oil prices shows that anytime there is a renewed US military threat against Iran, fuel prices move up several notches.

Not long ago the price of oil was about a quarter of what it is today. But soon after the invasions of Afghanistan and Iraq the price of oil began to escalate in tandem with the escalation of war and political turbulence in the Middle East. The fact that the rise in the price of oil has followed the heightened insecurity in oil markets is neither accidental nor a simple correlation; it represents a causality that runs from the heightened insecurity in oil markets to the inflated price of energy.

The war also contributes to the escalation of fuel cost in indirect ways; for example, by plunging the US ever deeper into debt and depreciating the dollar. As oil is priced largely in US dollars, oil exporting countries ask for more dollars per barrel of oil as the dollar loses value.

Not only are the raging wars in the Middle East responsible for energy price inflation, they are also responsible for price inflation of many other commodities, especially grains and other foodstuff, whose production and transportation depend on fuel. According to the World Bank, food prices have more than doubled over the past three years. The price of rice, the staple for billions of Asians, is up 147% over the past year alone. The mounting food prices have caused hunger and deadly violence in many countries, including Haiti, Egypt, Thailand, Indonesia, Senegal, and Malaysia.

This shows that the disastrous consequences of US wars of choice go beyond Iraq, Afghanistan, and the United States. The skyrocketing costs of fuel and food tend to plunge many of the world economies into a 1970s-style stagflation (a combination of stagnation and inflation) that threatens many lives and/or livelihoods around the globe.

Neoconservative forces in and around the Bush administration and beneficiaries of war dividends—wishing to deflect attention away from war as the main culprit for the skyrocketing energy prices—tend to blame secondary or marginally relevant factors: OPEC, China and India for their increased demand for energy, or supply-demand imbalances in global markets.

Whatever the contributory role of these factors, the fact remains that the current oil price hikes started with the beginning of the Bush administration’s wars against Iraq and Afghanistan. Furthermore, a closer examination of these factors reveals that their roles in the current price inflation of oil have been negligible.

The claim that there is a supply-demand imbalance in global energy markets cannot be backed by facts. The alleged disparity between supply and demand is said to be due to the rapidly growing demand coming from China and India. But that rapid growth in demand is largely offset by a number of counterbalancing factors. These include slower growth in US demand due to its slower economic growth, efficient energy utilization in industrially advanced countries, and increases in oil production by OPEC, Russia, and other oil producing countries.

Nor can OPEC be blamed for the current energy crisis. OPEC’s desire to sometimes limit the supply of oil in order to shore up its price is limited by a number of factors. For one thing, OPEC members are not unmindful of the fact that inordinately high oil prices can hurt their own long-term interests as this is bound to prompt oil importers to economize on fuel consumption and search for alternative sources of energy.

For another, OPEC members also know that inordinately high oil prices could precipitate economic recessions in oil importing countries that would, in turn, lower demand for their oil. In addition, high oil prices tend to raise the cost of oil producers’ imports of manufactured products as high energy costs are bound to be reflected in higher costs of those products.

For these reasons leading OPEC members such as Saudi Arabia and Iran have repeatedly stated that they prefer stable, predictable, and moderate oil prices to short-term oil price hikes that result from war, political turbulence and unstable markets.

The political implications of this discussion are clear: to bring down the prices of fuel and food requires bringing home the troops. By lowering the energy costs of production and transportation this will help save our own and many other economies from the plagues of inflation and stagnation. It will bring relief to hundreds of millions worldwide who are burdened by crippling energy bills and the crushing costs of feeding their families.

Not many people would doubt the devastating socio-economic consequences of the US wars of choice, both at home and abroad. The question is: why can’t they be stopped?

The answer is that while the war has been ruinous to many, it has been a boon for a few, the powerful special interests who not only benefit from war (both economically and geopolitically), but who have also positioned themselves within the US power structure in ways that allows them to constantly invent new enemies and make new wars in order to further their nefarious interests.

Who are these powerful special interests, the highly influential beneficiaries of war dividends who camouflage their evil objectives behind national interests in order to perpetuate war and militarism and fill out their deep pockets, or further their geopolitical interests in the Middle East?

A most widely-cited factor behind the Bush administration’s drive to war and the soaring energy cost is said to be Big Oil. Despite its popularity, however, this claim cannot be supported by facts; it tends to rest more on perception and precedent than reality.

It is true that for a long time, from the beginning of Middle Eastern oil exploration and discovery in the early twentieth century until the mid-1970s, colonial and/or imperial powers controlled oil either directly, or through control of oil producing countries—at times, even by military force. But that pattern of exploitation of global markets and resources has now changed.

It is also true that, once the Bush administration commenced with the invasion of Iraq, American oil companies set up shop in Baghdad in order to partake in the spoils of war. But this was not limited to oil companies; many non-oil transnational corporations likewise rushed to Baghdad to make an economic killing.

The larger part of the perception, however, stems from the fact that oil companies handsomely benefit from oil price hikes that result from war and political turbulence in the Middle East. Such benefits are, however, largely incidental. Surely, American oil companies would welcome the spoils of war. From the largely incidental oil price hikes that follow war and political convulsion, most observers automatically conclude that Big Oil must have been behind the war.

There is no hard evidence, however, that oil companies pushed for or supported the Bush administration’s plans of invading Iraq—just as they are now leery of the administration’s threat of a military strike against Iran. “The big oil companies were not enthusiastic about the Iraqi war,” says Fareed Mohamedi of PFC Energy, an energy consultancy firm based in Washington, D.C. “Corporations like Exxon-Mobil and Chevron-Texaco want stability, and this is not what Bush is providing in Iraq and the Gulf region,” adds Mohamedi [1].

During the past few decades, major oil companies have consistently opposed US policies and military threats against countries like Iran, Iraq, and Libya. They have, indeed, time and again, lobbied US foreign policy makers for the establishment of peaceful relations and diplomatic rapprochement with those countries. The Iran-Libya Sanction Act of 1996 (ILSA) is a strong testament to the fact that oil companies nowadays view wars, economic sanctions, and international political tensions as harmful to their long-term business interests and, accordingly, strive for peace, not war, in international relations.

The 1996 Iran-Libya Sanction Act, which amounted to a total trade and investment embargo against these two countries, penalized not only Iran and Libya, but also major American oil companies, especially the Conoco oil company that had just signed a $1 billion contract to develop fields in Iran.

It is no secret that the major force behind the Iran-Libya Sanction Act was the America Israel Public Affairs Committee (AIPAC). The success of AIPAC in passing ILSA through both the Congress and the White House over the opposition of the major US oil companies is testament to the fact that, in the context of US policy in the Middle East, even the influence of Big Oil pales vis-à-vis the influence of the pro-Israel lobby [2].

So, if Big Oil no longer favors war and political turbulence in oil markets, what, then, are the driving forces behind the Bush administration’s war and military adventures in the Middle East?

Many would immediately point to the power and influence of neoconservative forces in and around the Bush administration. While obviously this would not be false, it would not be the whole truth either; it hides more than it reveals. Specifically, it tends to lose sight of the bigger, but largely submerged, picture: the powerful special interests that lie behind the façade of neoconservative figures.

There is clear evidence that the leading neoconservative figures have been long-time political activists who have worked through think tanks set up to serve either as the armaments lobby, or the pro-Israel lobby, or both—going back to the 1990s, 1980s and, in some cases, 1970s. These corporate-backed militaristic think tanks include the American Enterprise Institute, Project for the New American Century, Center for Security Policy, Middle East Media Research Institute, Washington Institute for Near East Policy, Middle East Forum, National Institute for Public Policy, and Jewish Institute for National Security Affairs.

There is also evidence that the major components of the Bush administration’s foreign policy, including the war on Iraq, were designed long before George W. Bush arrived in the White House—largely at the drawing boards of these think thanks, often in collaboration directly, or indirectly, with the Pentagon, the arms lobby, and pro-Israel lobby. Even a cursory look at the records of these militaristic think tanks—their membership, their financial sources, their institutional structures, and the like—shows that they are set up to essentially serve as institutional fronts to camouflage the dubious business and political relationship between the Pentagon, its major contractors, and the pro-Israel lobby on the one hand, and militaristic neo-conservative politicians, on the other .

While the Bush administration’s unilateral wars and military adventures have brought unnecessary death, destruction, and economic hardship to millions, including many in the United States, they have also brought fortunes and prosperity to war profiteers. Pentagon contractors constitute the overwhelming majority of these profiteers. They include not only giant manufacturing contractors such as Lockheed Martin, Northrop Grumman and Boeing, but also a complex maze of over 100,000 service contractors and sub-contractors such as private army or security corporations and “reconstruction” firms.

The rise of the fortunes of the major Pentagon contractors can be measured, in part, by the growth of the Pentagon budget since President George W. Bush arrived in the White House: it has grown by more than 76% percent, from $297 billion in 2001 to almost $520 billion in 2008. These figures do not include the Homeland Security budget, which is close to $40 billion for the 2008 fiscal year alone, and the costs of the wars in Iraq and Afghanistan, which amount to nearly $200 billion per year.

The skyrocketing Pentagon’s share of public money has meant that, for example, in the current (2008) fiscal year military spending represents 58 cents out of every dollar spent by the US government on discretionary programs . (Discretionary programs include everything except Social Security and Medicare, that is, education, health, housing assistance, international affairs, natural resources and environment, justice, veterans’ benefits, science and space, transportation, training/employment and social services, economic development, and several more items.)

The soaring military spending has also meant that beneficiaries of war dividends are essentially looting the national treasury in order to line their pockets. These include not only the Pentagon and its military contractors but also members of the key Congressional committees who have grown increasingly addicted to generous contributions to their reelection that come from the fortunes of the Pentagon and its business clients.

US lawmakers have additional, more direct, financial interests in war and military spending: “Members of Congress have invested nearly 196 million dollars of their own money in companies that receive hundreds of millions of dollars a day from Pentagon contractors to provide goods and services to US armed forces.” This means “lawmakers charged with overseeing Pentagon contractors hold stocks in those very firms” .

It also means that our esteemed lawmakers know how or where to invest most profitably: “Shares of US defense companies have nearly trebled since the beginning of the occupation of Iraq. . . . The feeling that makers of ships, planes and weapons are just getting into their stride has driven shares of leading Pentagon contractors Lockheed Martin Corp., Northrop Grumman Corp., and General Dynamics Corp. to all-time highs”].

It is not surprising, then, that many elected officials with input or voting power in the process of the appropriation of the Pentagon budget find themselves in the pocket of defense contractors. Neither is it surprising that these dubious relationships should serve as breeding grounds for the near legendary levels of waste, inefficiency, and corruption that surround the military-industrial-congressional complex.

Two major conclusions follow from this discussion. The first is that, as pointed out earlier, war and political instability in the Middle East are the major driving forces behind the soaring price of oil; and that, therefore, to contain or reverse the rising trend of energy prices requires bringing US troops home. The second conclusion is that achievement of this goal, the goal of ending US wars of aggression, is possible only if (a) money or profits are taken out of war, and (b) money is taken out of elections].

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